At Rocky Point Beach, the gang are all ready to have fun. But they are frightened off when the ghostly figure of a man in a diving suit materializes out of the surf. It soon vanishes, and the gang don't know what to make of it until later when they read of expensive yachts disappearing from the local marina. The newspaper quotes beach hermit Ebenezer Shark as blaming the disappearances on the ghost of Captain Cutler, who died when his boat was rammed and sunk by just such a yacht. The gang interviews Shark, whose story leaves them incredulous, especially after Scooby tangles with Shark's own diving suit, which closely resembles the one that they saw on the beach.
Fred and Daphne stay to watch Shark's movements while Velma, Shaggy and Scooby visit Cutler's widow. She is a practicing witch and claims responsibility for summoning up her husband's ghost, though she also says that she regrets that he is taking his revenge. After taking their leave, the three spot a mysterious glowing patch moving across the beach; they catch up to it and discover it is a wad of phosphorescent glowing seaweed native to the "Graveyard of Ships," the patch of sea where Cutler went down.
Changing into their diving gear, the gang heads out to the Graveyard of Ships to investigate. On their way out, they spot a yacht (empty of occupants) gliding into a cove. They follow it, but it has vanished. Returning to the Graveyard of Ships, they dive to investigate and split up.Fred, Daphne and Velma think that they've found Cutler's corpse inside a wreck and go to investigate, but they are locked inside by Cutler's ghost, which then spots and chases Scooby and Shaggy. Scooby escapes and crashes into another wreck where glowing oxygen are being stored. Shaggy and Scooby then stumble onto and free Freddy, Daphne and Velma, and the gang follows Cutler's glowing tracks to an undersea cliff, which they recognize as the spot where the yacht had vanished. Shaggy sits on a rock which works the lever that opens a secret entrance in the cliff. Inside they find a gigantic cavern containing all the stolen yachts, which are in the process of being repainted. They trap the ghost (with their typical incompetent-trap-that-that-still-somehow-works) and pull his helmet off. They don't recognize the villain until Shaggy adds a patch of seaweed as a beard: It's Captain Cutler himself. While stealing yachts one evening, he became encumbered in the glowing seaweed, and he and his wife decided to use the legend of a ghost in order to cover up their scheme to steal, repaint, and resell expensive yachts.
This mystery can be seen from Captain Cutler point of view in the Scooby-Doo comic book (By DC) #135.